A New Way To Measure Word-Of-Mouth Marketing

Consumers have always trusted personal recommendations. Marketers can invest millions in elaborate ad campaigns, but what often influences a buyer’s decision the most is something simple and free: a word-of-mouth endorsement from someone they trust. As people navigate an overwhelming number of product options, traditional marketing messages often get ignored. However, word of mouth breaks through the noise efficiently.

In fact, it drives 20 to 50 percent of all purchasing choices. Its impact is strongest when someone is buying a product for the first time or when the item is high-priced – both scenarios where consumers tend to research more, seek additional opinions, and take extra time to decide. This influence is only growing as digital platforms amplify their reach. What was once a private, one-on-one exchange has now expanded into a broad network of shared opinions. Online reviews and social media conversations allow word of mouth to spread far beyond personal interactions. Some consumers even create blogs or websites to either promote or criticize brands, further shaping public perception.

As online communities expand in size and diversity, marketers increasingly recognize the growing influence of word of mouth. However, tracking and managing it remains a challenge. Word of mouth can be analyzed to determine what makes it effective, and its impact can be assessed using what we refer to as "word-of-mouth equity" – a measure of a brand’s ability to generate conversations that influence purchasing decisions. By understanding how messages spread and what makes them effective, businesses can develop targeted strategies that ensure the right people receive the right information in the right context. This approach can significantly boost the likelihood of consumers recommending, purchasing, and remaining loyal to a product.

A Consumer-Driven Marketplace

The vast amount of information available today has shifted power from companies to consumers. As people become overwhelmed with choices, they grow more skeptical of traditional advertising and marketing efforts. Instead, they increasingly rely on their own research and trusted sources to guide their buying decisions.

This shift has reshaped the way consumers make purchases. Once they decide to buy a product, they begin with a shortlist of brands based on past experiences, recommendations, or awareness created by marketing efforts. They then actively compare options, gathering information from multiple sources before finalizing a purchase. Their experience with the product then informs future buying decisions. While the influence of word of mouth varies at different points in this process, it remains one of the top three factors shaping consumer choices at every stage.

Exhibit 1

Top 3 Factors That Influence Whether a Product is Considered at Each Stage of the Consumer Decision Journey (Mobile Phone Example, %)

In Mature Markets:

• Stage 1 - Initial Consideration Set
  • Advertising: 30%
  • Previous Usage: 26%
  • Word of Mouth: 18%
• Stage 2 - Active Evaluation
  • Internet Information: 29%
  • Shopping: 19%
  • Word of Mouth: 18%
• Stage 3 - Moment of Purchase
  • Internet Information: 65%
  • Shopping: 20%
  • Word of Mouth: 10%

In Developing Markets:

• Stage 1 - Initial Consideration Set
  • Word of Mouth: 18%
  • Advertising: 17%
  • Previous Usage: 15%
• Stage 2 - Active Evaluation
  • Word of Mouth: 28%
  • Advertising: 19%
  • Previous Usage: 13%
• Stage 3 - Moment of Purchase
  • Word of Mouth: 46%
  • Advertising: 40%
  • Previous Usage: 9%

Note: Figures do not sum to 100% because percentages for several other factors are not shown.
Excludes consumers who were contacted by the provider to extend their contract after expiration.

It is also the most influential factor. Word of mouth can drive consumers to explore a brand or product in a way that additional advertising spending simply cannot. It is not a one-time occurrence either. The right messages spread and grow within engaged networks, shaping brand perception, influencing purchase behavior, and impacting market share. The expansion of online communities and digital communication has significantly amplified the potential reach and impact of word-of-mouth marketing. In the mobile phone industry, for example, we have observed that positive or negative messaging can influence market share by increasing it by up to 10 percent or decreasing it by 20 percent within two years, assuming all other factors remain unchanged. This alone highlights the importance of studying and actively managing word of mouth.

Understanding Word of Mouth

While word of mouth is intricate and influenced by various factors, we have identified three key types that marketers should focus on: experiential, consequential, and intentional.

Experiential

This is the most common and impactful type, accounting for 50 to 80 percent of word-of-mouth activity across different product categories. It stems from direct consumer interactions with a product or service, particularly when the experience is unexpected – either positively or negatively. (Consumers rarely feel the need to discuss a product when it simply meets their expectations.) A classic example of negative experiential word of mouth is when airlines misplace luggage, which harms the brand’s reputation and reduces customer loyalty. This, in turn, diminishes the effectiveness of traditional marketing and weakens any positive word of mouth from other sources. On the other hand, positive experiential word of mouth can create momentum, helping a product or service gain widespread appeal.

Consequential

Marketing efforts can also drive word of mouth. One of the most frequent ways this happens is through what we call consequential word of mouth. This occurs when consumers exposed to traditional advertising campaigns share what they have seen or heard with others. The influence of these shared messages is often stronger than the direct impact of the advertisements themselves. Campaigns that spark positive word-of-mouth discussions tend to have a wider reach and greater influence. To maximize returns, marketers must account for both the direct effect of their messaging and the ripple effect created when people spread it further.

Intentional

Intentional word of mouth is less common and typically occurs when marketers deliberately try to generate buzz – for instance, through celebrity endorsements during product launches. Few companies actively invest in this strategy, largely because measuring its impact is challenging, and many marketers are unsure how to effectively execute such campaigns.

Regardless of the type of word-of-mouth marketing – experiential, consequential, or intentional – marketers need a reliable method to assess and quantify its impact, both in terms of influence and financial outcomes, whether positive or negative.

Word-of-Mouth Equity

One approach to measuring word of mouth is by tracking the number of positive and negative recommendations a product receives. This method is simple and intuitive, but it presents a challenge: not all word-of-mouth messages carry the same weight. For example, a recommendation from a close family member is far more persuasive than one from a stranger. Even though both are recommendations, their influence on purchasing decisions is vastly different. Our research indicates that a high-impact recommendation – such as one from a trusted friend sharing a meaningful message – can be up to 50 times more likely to lead to a purchase compared to a lower-impact one.

To better quantify the influence of various recommendations, we created a metric known as word-of-mouth equity. This metric calculates the average sales impact of a brand-related message and then multiplies it by the total volume of word-of-mouth discussions. By considering both impact and frequency, this approach enables marketers to accurately measure how these conversations affect sales, brand performance, and overall market share. The effectiveness of a single recommendation or deterrent depends on multiple factors – what is said, who is saying it, and where it is being shared. Additionally, the level of influence varies across different product categories.

Exhibit 2

Effect of Word-of-Mouth Messages on Company Brand

Word-of-Mouth Equity Formula:

Volume × Impact = Word-of-Mouth Equity

1. Volume (Number of Messages)

• Few messages
• Many messages

2. Impact (Factors Influencing Effectiveness)

a. Network: Where are they talking?

• High impact: Close/trusted network
• Low impact: Large/dispersed network

b. Sender: Who is talking?

• High impact: Influential person
• Low impact: Non-influential person

c. Message Content: What are they saying?

• High impact: Relevant key buying factor for the consumer
• Low impact: Irrelevant key buying factor for the consumer

d. Message Source: What is the trigger?

• High impact: Consumer’s own experience with the product or service
• Low impact: Trigger not based on personal experience (e.g., hearsay)

3. Word-of-Mouth Equity (Strength of Impact on Brand)

• Strong equity occurs when messages are:
  • Few in number, BUT
  • Close/trusted
  • Influential
  • Related to a favorable buying factor
  • Based on the consumer’s personal experience

The main factor driving word-of-mouth influence is the message itself. In most product categories, for a message to impact consumer decisions, it must highlight key product or service attributes. For example, in the mobile phone industry, design tends to matter more than battery life. In the skincare sector, discussions around packaging and ingredients generate stronger word-of-mouth than emotional narratives about how a product makes users feel. While marketers often craft campaigns around emotional appeals, consumers are more likely to engage with and spread messages that focus on a product’s practical benefits.

Another crucial factor is who delivers the message. The recipient must trust the sender and believe they have real knowledge of the product or service. Our research indicates that there is no single group of influential consumers across all categories. A person with deep knowledge about cars might influence car buyers but may not impact those shopping for beauty products. Roughly 8 to 10 percent of consumers fall into a category we call influentials – people who are both trusted and knowledgeable. These individuals produce three times more word-of-mouth messages than the average consumer, and their recommendations are four times more likely to affect purchasing decisions. Within this group, about 1 percent are digital influentials (primarily bloggers) who hold an outsized level of influence.

Finally, the setting in which word-of-mouth messages circulate significantly impacts their effectiveness. Conversations within small, trusted circles tend to have a stronger influence than those spread through broad, loosely connected networks. People generally value the opinions of those they trust the most, which is why personal recommendations, whether in face-to-face conversations or their digital equivalents, continue to play a crucial role. Someone may have 300 Facebook friends, but they are far more likely to consider the advice of a handful of close and trusted individuals rather than the majority.

Word-of-mouth equity provides businesses with valuable insights into how informal recommendations influence brand and product performance. While marketers have long recognized its significance, they may be surprised by just how impactful it can be. When Apple introduced the iPhone in Germany, its share of word-of-mouth discussions in the mobile phone category was around 10 percent – roughly a third less than the market leader. However, because the iPhone had already debuted in other countries, the buzz generated around it in Germany was nearly five times more influential than the average product launch. As a result, the iPhone's word-of-mouth equity score exceeded that of the market leader by 30 percent, with three times as many influential consumers endorsing it over other top-selling phones. This positive word-of-mouth effect drove sales that were six times greater than those directly attributed to Apple’s paid advertising efforts. Within two years of its launch, the iPhone was selling close to a million units annually in Germany.

The versatility of word-of-mouth equity makes it an effective tool for evaluating how word-of-mouth influences companies, products, and brands across different industries. Since it measures the effectiveness of messages rather than just their volume, it helps pinpoint what factors are strengthening or weakening word-of-mouth impact. Both insights are essential for marketers looking to transform this knowledge into a strategic advantage.

Leveraging Word of Mouth

The potential benefits of excelling in word-of-mouth marketing are substantial, offering a lasting and meaningful competitive advantage that few other strategies can achieve. However, many marketers hesitate to embrace it. Some feel that word-of-mouth marketing lacks the level of refinement seen in traditional advertising channels like television and print media. Others worry about the absence of extensive historical data or well-established marketing tools that have been perfected over time. For those uncertain about actively managing word of mouth, consider this: the marginal benefit of creating superior television ads over competitors is relatively limited since most companies already optimize their traditional marketing efforts. Meanwhile, few businesses fully harness word of mouth, arguably the most powerful form of marketing, leaving significant untapped potential for those who do.

The first step in managing word-of-mouth impact is identifying which factors – who is spreading the message, what is being said, or where conversations take place – matter most for a given product category. For instance, in skincare, the message itself carries the most weight, while in retail banking, the credibility of the person sharing the recommendation is more important. Analyzing word-of-mouth equity can reveal the specific influencers in a category and determine which messages, settings, and networks have the greatest effect. With these insights, businesses can develop strategies to foster positive word of mouth using the three primary types: experiential, consequential, and intentional.

While the significance of these triggers varies across industries, experiential word of mouth tends to be the most influential. Effectively utilizing it involves creating opportunities for customers to share positive experiences and ensuring that their stories resonate with others. Some brands, like Miele and Lego, generate buzz even before launching new products by involving consumers in development and engaging them through online communities. Regularly enhancing the product experience also fuels word of mouth – consumers are more likely to talk about a product when it is new, making product launches and updates key to generating excitement. Even after launch, brands can maintain interest. Apple, for example, has kept the iPhone in conversations through its App Store, where a constant flow of new and user-generated content sustains enthusiasm and positive discussions.

Most businesses rely on customer satisfaction insights when designing new products and services. However, simply having satisfied customers may not be enough to generate word-of-mouth buzz. To create meaningful and impactful recommendations, the customer experience must not only exceed expectations but also do so in ways that are significant to the consumer and worth discussing. For example, while battery life is an essential factor in mobile handset satisfaction, consumers tend to talk more about design and usability. To turn customers into brand advocates, companies must excel in product and service features that naturally lend themselves to word-of-mouth conversations.

Effectively managing consequential word of mouth requires leveraging insights from word-of-mouth equity to maximize marketing efforts. By analyzing how different marketing channels and messages influence word-of-mouth engagement, companies can strategically allocate resources to encourage consumers to spread brand messages, extending their reach and impact. Research indicates that consumer-driven word-of-mouth marketing can generate over twice the sales of traditional advertising in industries such as skincare and mobile devices.

Two key elements amplify positive consequential word of mouth: interactivity and creativity. These factors are closely connected and particularly valuable for brands in low-innovation industries that struggle to capture consumer attention. A successful example is the UK confectionery brand Cadbury, which utilized a blend of engaging, creative, and integrated marketing, both online and offline, to spark consumer interest and boost sales through its "Glass and a Half Full" campaign.

The campaign kicked off with a television ad featuring a gorilla enthusiastically drumming along to a classic Phil Collins song. The unexpected and humorous combination instantly captivated audiences. Viewers were so entertained that many sought out the commercial online, sparking a wave of user-generated content as fans recreated their own versions. This led to an explosion of imitations on YouTube. Within three months of its release, the video had amassed over six million online views, sales of Cadbury’s Dairy Milk chocolate had grown by more than 9 percent compared to the previous year, and consumer sentiment toward the brand had improved by approximately 20 percent.

Intentional word-of-mouth marketing revolves around identifying key individuals who naturally become advocates for a brand or product. While companies cannot dictate exactly what consumers say, strategic marketers can use insights from word-of-mouth equity to transition from organic conversations to deliberate campaigns that encourage positive messaging.

The type of campaign a company chooses depends on its ability to locate and engage influential consumers. Businesses with access to detailed customer data, such as mobile carriers, are particularly well-suited to running targeted, high-impact word-of-mouth initiatives. These companies can pinpoint individuals who are well-versed in the industry, frequently share their opinions, and hold credibility within their networks. By directing marketing efforts toward these key figures, brands can amplify their message through trusted recommendations, creating a ripple effect that spreads organically across social circles.

Companies that lack the ability to precisely target influential consumers must adopt a different strategy. Red Bull, for instance, cannot send direct messages to select individuals, but it has mastered the art of crafting intentional word-of-mouth campaigns through strategic planning. By identifying key opinion leaders within its target demographics, the energy drink brand ensures that celebrities and trendsetters introduce its messaging to the right audience, often through high-profile events. While there’s no guarantee of exactly who will attend, Red Bull understands that the attendees are likely to be the consumers it wants to reach. The positive impressions these individuals share within their networks create a ripple effect, ultimately delivering a strong return on investment for the brand's marketing efforts.

Marketers have long recognized the power of word of mouth, and crafting effective campaigns has always required a certain level of skill. However, the analytical approach behind word-of-mouth equity provides a more structured way to refine and optimize these strategies. It helps identify the types of messages consumers are most inclined to share and measures the real impact of those messages. This data allows marketers to gauge how word of mouth influences brand perception and sales, making it a valuable tool for companies aiming to maximize their marketing effectiveness and achieve greater returns on their investment.